Expert Analysis: July Retail Sales

Headline retail sales rose 0.2% in July, slightly less than expected but last month’s sales were revised up two-tenths from 0.4% to 0.6%. This is the fourth consecutive monthly increase in retail sales. Excluding autos, retail sales rose 0.5%, the strongest monthly gain since February.

Gasoline station sales rose 0.9% in July after a 0.6% increase the month prior. Year-over-year gasoline station sales are up 5.3% NSA. Excluding gasoline purchases, retail sales are up just 0.1% for the month, down from +0.6% in June. On a three month annualized basis, sales less gasoline are up 5.6%, little changed from a 5.5% pace at the end of the second quarter.

Auto purchases fell 1.0% after an impressive near 3% increase in June. Year-over-year auto sales are up 15% NSA. Excluding autos and gas, retail sales rose 0.4% in July after no change in June (+0.03%). On a three-month annualized basis, core sales rose 2.9% in July, down from a 3.3% pace in June.

Further details: Food and beverage sales rose 0.8% in July, and health and personal care purchases increased 0.7%, both more than tripling last month’s increase. Clothing purchases rose 0.9% after no change in June, sporting goods sales rose 1.0%, and general merchandise sales increased 0.4% thanks in part to a 0.6% gain in department store purchases after several consecutive months of declines. Miscellaneous sales rose 0.8% after falling 1.6% the month prior, non-store retailers rose 0.1%, and eating and drinking retailer’s sales increased 0.6% in July.

Furniture purchases dropped 1.4% after a 2.5% rise, electronics sales dropped one-tenth and building materials sales fell 0.4% in July, the second consecutive monthly decline. Excluding autos and building materials, sales are up 0.5% for the month.

Bottom line: Consumers continued to spend through the first quarter despite onerous tax increases. But by the second quarter, while consumers were still spending, momentum had slowed. Many will argue at this point it is clear the burden of higher taxes and spending cuts have run their course. But the effects of tax increases often take time to filter into consumers’ long-run spending patterns, and with government furloughs taking effect coupled with modest employment gains and minimal income growth, there is plenty of cause for caution. While positive, this morning’s retail sales report was far from robust, and not yet enough to eradicate fears of a consumer slowdown undermining growth in the second half of the year.